Why the number of bonds does not affect the realized return? Explain your answer thoroughly.IssuerFace ValueCoupon RateInterest per YearRatingQuoted PriceYears until MaturitySinking FundCall PeriodNominal YTMFV of CouponFV of Coupon + Face ValueRequired ReturnABC Energy$1,0005%$50AAA$703.1020Yes38.0001%1,685.06$2,685.066.8133%ABC Energy$1,0000%0AAA$208.3020YesNA7.9997%0.00$1,000.007.9997%TransPower$1,00010%$100AA$1,09220Yes59.0001%3,370.13$4,370.137.0555%Telco Utilities$1,00011%$110AA$1,206.4030No58.9998%7,479.54$8,479.546.6082%

Required rate of return is the minimum return an investor requires on its investment over a period…

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Why the number of bonds does not affect the realized return? Explain your answer thoroughly.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 19P

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Concept explainers

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.

Question

Why the number of bonds does not affect the realized return? Explain your answer thoroughly.

Issuer	Face Value	Coupon Rate	Interest per Year	Rating	Quoted Price	Years until Maturity	Sinking Fund	Call Period	Nominal YTM	FV of Coupon	FV of Coupon + Face Value	Required Return
ABC Energy	$1,000	5%	$50	AAA	$703.10	20	Yes	3	8.0001%	1,685.06	$2,685.06	6.8133%
ABC Energy	$1,000	0%	0	AAA	$208.30	20	Yes	NA	7.9997%	0.00	$1,000.00	7.9997%
TransPower	$1,000	10%	$100	AA	$1,092	20	Yes	5	9.0001%	3,370.13	$4,370.13	7.0555%
Telco Utilities	$1,000	11%	$110	AA	$1,206.40	30	No	5	8.9998%	7,479.54	$8,479.54	6.6082%

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